Macro

The most important determinant of a household's consumption spending is

its disposable income

An increase in the value of the U.S. dollar relative to other currencies will

shift the autonomous net export function downward

The consumption function relates consumption spending to

disposable income

If consumption is greater than income, saving must be negative.

True

If the marginal propensity to consume is equal to 0.70 and income rises by $20 billion, then consumption spending will rise by

$14 billion

A change in which of the following is least likely to cause a shift of the consumption function?

investment spending

Along the aggregate consumption function, an increase in income will

cause movement along the given consumption function

$35,800 to $36,400, then its

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If a household's income rises from $46,000 to $46,700 and its consumption spending rises from $35,800 to $36,400, then its

If a household's income rises from $46,000 to $46,700 and its consumption spending rises from $35,800 to $36,400, then its

marginal propensity to consume is 0.86

Suppose that when disposable income rises from $3 trillion to $3.2 trillion, consumption rises from $2.5 trillion to $2.6 trillion. What is the marginal propensity to consume?

0.5

Which of the following would not shift the consumption function upwards?

an increase in disposable income

Consumption

makes up about two-thirds of GDP in a typical year

New investment will be undertaken up to the point where the expected rate of return equals

the market interest rate

A grocery store manager must decide whether to buy four rug cleaners to rent to customers. The manager estimates that the first would yield $200 a year, the second $150, the third $75, and the fourth $20. If the interest rate is 12 percent and each rug cleaner costs $500, how many should the manager buy?

three

Which of the following would be most likely to cause a rightward shift of the investment demand curve?

an improvement in business expectations

A household that expects a decrease in disposable income in the future will

decrease its current consumption spending

An increase in wealth will

increase consumption and decrease saving at each level of income

Imagine a macro investment demand curve that shows that, if the market interest rate is 4 percent, the quantity of investment demanded is $500 billion. Then, if the market rate rises to 5 percent, the most likely result is that the quantity of investment demanded

declines to $450 billion

If incomes in the United States increase, other things equal, then U.S.

imports increase and exports remain constant

Which of the following is not a component of aggregate expenditure?

saving

Which of the following is not an example of a government purchase?

Chinese toys to be sold in discount department stores

Net taxes are

taxes minus transfer payments

During recession years,

investment declines much faster than GDP declines

Exhibit 9-2

Income=output(Y)

C

Plannedinvestment

Aggregateexpenditure

Unintendedinventoryadjustment

Actualinvestment

$1,200

$1,240

$200

$1,440

-$240

-$ 40

1,400

1,380

200

1,580

-180

-20

1,600

1,520

200

1,720

-120

80

1,800

1,660

200

1,860

-60

140

2,000

1,800

200

2,000

0

200

2,200

1,940

200

2,140

60

260

2,400

2,080

200

2,280

120

320

We can tell from the data in Exhibit 9-2 that planned investment is autonomous because

6016

it does not vary as income changes

The MPC plus the MPS equals

1.0

Exhibit 9-3

In Exhibit 9-3, when real disposable income is equal to $6 billion, saving is equal to

0

Schedule for Real GDPWith Net Taxes and Government Purchases(Trillions of Dollars)

RealGDP(Y)

NetTaxes(NT)

Dispos-ableIncome(Y-NT)

Con-sumption(C)

Saving(S)

PlannedInvest-ment(I)

NetExports(NX)

Govern-mentPurchases(G)

PlannedAggregateExpenditure(C+I+NX+G)

3.0

0.9

2.1

2.0

0.1

0.5

-0.2

0.9

3.2

3.6

0.9

2.7

2.4

0.3

0.5

-0.2

0.9

3.5

4.2

0.9

3.3

2.8

0.5

0.5

-0.2

0.9

4.0

4.8

0.9

3.9

3.2

0.7

0.5

-0.2

0.9

4.4

5.4

0.9

4.5

3.6

0.9

0.5

-0.2

0.9

4.8

In Exhibit 10-1, which of the variables are autonomous?

investment, net exports, net taxes, and government purchases

Schedule for Real GDPWith Net Taxes and Government Purchases(Trillions of Dollars)

RealGDP(Y)

NetTaxes(NT)

Dispos-ableIncome(Y-NT)

Con-sumption(C)

Saving(S)

PlannedInvest-ment(I)

NetExports(NX)

Govern-mentPurchases(G)

PlannedAggregateExpenditure(C+I+NX+G)

3.0

0.9

2.1

2.0

0.1

0.5

-0.2

0.9

3.2

3.6

0.9

2.7

2.4

0.3

0.5

-0.2

0.9

3.5

4.2

0.9

3.3

2.8

0.5

0.5

-0.2

0.9

4.0

4.8

0.9

3.9

3.2

0.7

0.5

-0.2

0.9

4.4

5.4

0.9

4.5

3.6

0.9

0.5

-0.2

0.9

4.8

In Exhibit 10-1, the equilibrium level of income is

where real GDP = total planned expenditures

(Trillions of Dollars)

RealGDP(Y)

NetTaxes(NT)

Dispos-ableIncome(Y-NT)

Con-sumption(C)

Saving(S)

PlannedInvest-ment(I)

Govern-mentPurchases(G)

NetExports(X-M)

PlannedAggregateExpenditures(C+I+G+(X-M)

5.0

1.0

4.0

3.9

0.1

1.0

1.0

-0.7

5.2

5.5

1.0

4.5

4.3

0.2

1.0

1.0

-0.7

5.6

6.0

1.0

5.0

4.7

0.3

1.0

1.0

-0.7

6.0

6.5

1.0

5.5

5.1

0.4

1.0

1.0

-0.7

6.4

7.0

1.0

6.0

5.5

0.5

1.0

1.0

-0.7

6.8

At the equilibrium level of GDP in Exhibit 10-2, injections equal

$1.3 trillion

Exhibit 10-3

Which of the following best describes the situation at point B in Exhibit 10-3?

producers are experiencing an unexpected loss in inventory

Which of the following is not true at the equilibrium quantity of GDP demanded?

planned injections into the circular flow are less than planned leakages out of the flow

Which of the following is illustrated by the distance between the aggregate expenditure line and the 45-degree line at each level of real GDP?

unplanned inventory change

In the income-expenditure framework, if planned aggregate expenditures are greater than real GDP,

inventories will decrease

Exhibit 10-4

RealGDP

Consumption

PlannedInvestment

$ 0

$ 140

$100

100

220

100

200

300

100

300

380

100

400

460

100

500

540

100

600

620

100

700

700

100

800

780

100

900

860

100

1,000

940

100

1,100

1,020

100

1,200

1,100

100

1,300

1,180

100

The MPC in the economy represented in Exhibit 10-4 is

0.8

An increase in autonomous investment will

shift the aggregate expenditure line upward

The simple multiplier

is defined as 1.0 divided by the marginal propensity to save

That fraction of a change in disposable income that is consumed is called

In a model with neither income taxes nor international trade, if the marginal propensity to consume in your classmate's nation is 3/5 and the marginal propensity to save in your country is 1/10, which of the following must be true?

Increases in government purchases increase real GDP demanded more per dollar in your country than they do in your classmate's country.

The loss of jobs as a result of the September 11, 2001, attack in New York

affected all sectors of the economy because of the multiplier effect

An increase in the price level can be indicated by a downward shift of the aggregate expenditure line.

True

An increase in the price level will

shift the aggregate expenditure line downward

As the U.S. price level rises relative to price levels in other countries, what would happen in the U.S.?

consumption and net exports would decline

A decrease in the price level will

shift the aggregate expenditure line upward

A decrease in the price level will have which of the following effects?

2437

There will be downward movement along a particular aggregate demand curve.

.

Anything that causes a movement along the aggregate expenditure curve will also cause a shift of the aggregate demand curve.

False

If the level of autonomous spending decreases at a given price level,

the aggregate expenditure line shifts downward; the aggregate demand curve shifts to the left

An increase in planned investment would shift the

aggregate demand curve outward

A change in consumers' expectations about the future will shift both the aggregate expenditure curve and the aggregate demand curve.

True

Aggregate supply reflects billions of production decisions made by

resource suppliers and firms

The expected price level is significant because

firms and resource owners make long-term agreements based on the expected price level

In Exhibit 11-3, at income level Y2

the actual unemployment rate equals the natural rate of unemployment

An expansionary gap is closed in the long run by a(n)

leftward shift of the short-run aggregate supply curve

As a contractionary gap is closed in the long run by firms' actions,

real GDP increases, but nominal GDP can increase, decrease, or remain the same

Which of the following would be evidence that a contractionary gap exists?

Help wanted advertising lower than usual, and the consumer price index lower than expected.

In the short run, real and nominal GDP will both decrease whenever

aggregate demand decreases, but not always when aggregate supply decreases

If the government wants the economy illustrated in Exhibit 12-4 to be at full employment, it should

do none of the above

When net taxes increase and government purchases decrease,

the aggregate demand curve shifts leftward

The U.S. government's fiscal year covers from

October of one year through September of the next year

Approximately what proportion of the U.S. federal budget was spent on national defense in 2010?

20 percent

The federal government budget is

a plan for government expenditures and revenues for the coming year

The U.S. federal budget is determined exclusively by Congress.

False

Other things equal, an increase in defense spending will increase the budget deficit.

True

Only about one-fourth of the federal budget involves expenditure categories determined by existing obligations and laws (e.g., interest on the national debt, Social Security, and Medicare

False

Federal spending (including transfer payments), as a percent of GDP,

has increased since 1921

If government increased Social Security benefits and decreased the salaries of government workers by the same amount, we would expect the immediate effect to be

no change in the budget deficit because government purchases of goods and services have decreased by the same amount as transfer payments have increased

If the government increased defense spending by $1 million and laid off enough Justice Department employees to decrease the Department of Justice budget by $1 million, we would expect the net effect to be

no change in the budget deficit because there is no net change in government spending

If the U.S. government spent $20 million paying people to dig holes in 2005, and then spent $30 million paying the same people to fill the holes up again that same year, we would expect the net effect to be a(n)

increase in the budget deficit as government purchases of goods and services increased by $50 million

Because of automatic stabilizers, government budget deficits are

smaller during expansions and larger during contractions

Which of the following has been advanced as a legitimate reason for federal budget deficits?

Both c and d are legitimate reasons for government budget deficits.

If the functional finance approach to federal budgeting is used, the federal government's budget deficit should be zero.

False

Which of the following is true of an annually balanced federal budget?

Such a policy could worsen a contractionary gap.

It took more than 200 years for the federal debt to reach $1 trillion

True

Actual federal budgets are not an accurate measure of discretionary fiscal policy because

even without changes in fiscal policy, budget deficits increase during recessions

If the deficit is increasing because of the effects of the automatic stabilizers,

the economy is contracting

Discretionary expansionary fiscal policy may lead to

all of the following except d

Which of the following is not a form of crowding out?

lower private spending due to higher taxes

Crowding in is more likely to occur, as a consequence of federal deficits, when

a contractionary gap exists

All of the following are possible implications of federal budget deficits except one. Which is the exception?

depreciation of the dollar

The national debt is dramatically larger than the federal government budget deficit.